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A Little Perspective on the Housing Bubble

IF A STOCK YOU OWNED, during the middle of the night, doubled in price due to some unusual temporary credit arrangement and then fell by the morning to the same price before you went to sleep, have you lost money? Most people who slept through it all would neither be a winner or loser. What …

IF A STOCK YOU OWNED, during the middle of the night, doubled in price due to some unusual temporary credit arrangement and then fell by the morning to the same price before you went to sleep, have you lost money? Most people who slept through it all would neither be a winner or loser. What is striking about the current subprime mortgage crisis that is affecting the financial and housing industries is the constant harping about the losses. Yet for many people who have owned their homes through this cycle and paid their mortgages, no money has been lost. The banks that financed these homes have made money.

Keep in mind that home ownership, despite the crisis in housing for most Americans, has reached an all-time high of 69 percent. This is comparable to Britain and Australia, but almost double that of Switzerland at 35 percent and well above the postwar U.S. rate. Also, if you want to buy a house today, the average 30-year mortgage is only 5.97 percent. Ten years ago, the same interest rate was closer to 7.5 percent and 30 years ago, the rate would have been 9.2 percent. The point is that people can still borrow more cheaply now than they could a few years ago. U.S. News reports that the alarm over the fall in home values at the national level has overshadowed local pockets of surprising strength.

Clearly, however, during that long night we refer to as the housing bubble there were sellers and buyers who lost and won. During that night bankers made money by issuing loans. Developers and builders who sold their inventories made money and lots of it. Some fortunate homeowners sold their homes without buying in again and made money. It’s true that those who kept their money in the game during that long night of easy credit and got left holding the bag are feeling pain. But this really depends whether they sold high and bought high. Where you start counting determines everything.

With this in mind we would argue that the economy is experiencing less pain than the media or grasping politicians eager to impose their pet fix would have us believe.

There were clearly winners and losers during the long night f the bubble. But for most of us who slept through it, neither buying nor selling a home, we are, if not unscathed, ready for the next growth opportunities and possibly a little richer than when we went to sleep.

Thank the Politicians for High Energy Prices

With gas north of $4 at the pump our solons in Washington have discovered a winning issue. Sen. McCain advocates a federal gas tax holiday while Senators Clinton and Obama want to stick it to big oil with a windfall profits tax, forgetting that this contributed to long gas lines in 1970s. Not to be outdone, Rep. Edward Markey (D-MA) issued a challenge to oil companies to invest 10 percent of their profits in renewable energy, with the veiled threat that if they didn’t, they would forfeit $18 billion a year in tax benefits.

Perhaps this is a good time to ask how we got here in the first place, not just in terms of oil prices but our energy predicament in general. If it weren’t for regulatory barriers, we wouldn’t be in a situation where not a single oil refinery has been permitted to be built in 31 years. And speaking of environmental regulation, how did the ANWR region become the holy of holies? If energy independence is truly a priority, why has Congress said nothing about the massive 200 billion barrel oil field stretching into North Dakota? The Bakken Formation could yield more than 10 times what the U.S. has in oil reserves, giving us the trump card against OPEC and dictators from Iran and Venezuela. Yet majority party leaders like Markey and Nancy Pelosi have declared war on producers of fossil fuels-a curious form of energy unilateral disarmament considering that, the importance of renewables notwithstanding, fossil fuels will remain our principal source of baseload energy for the better part of this century.

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